A blog of Bridge Environment, updated weekly on Thursdays, travel permitting.
Bridge Environment seeks to catalyze a cultural shift in how our society addresses environmental issues. We provide relevant and unbiased advice to any interested party, and also work to educate scientists, policy makers, and the public on how to have a more informative dialog over environmental issues.

Thursday, May 30, 2013

Do economists make better policies?

Two
weeks ago, I wrote about the
economics of fiscal stimulus and how the current debate surrounding it looks a
lot like an environmental policy debate. Though we face a fundamental trade-off
between the risk of future debt weighing the economy and that of current
austerity stunting growth, these trade-offs have not been directly addressed. I
suggested that we might have a more productive debate about fiscal stimulus
policy by highlighting this trade-off with an emphasis on uncertainties and how
we would like to address them. The current debate, though, looks a lot like the
dysfunctional negotiations we have over most environmental policy issues.

What is surprising about the
dysfunction around fiscal stimulus is that economists often do a better job.
One of the pleasures I had in going back to school to study economics after a
career as an environmental scientist and policy adviser was the chance to experience
an entirely different academic culture. Ecologists are often driven by field
observational or laboratory skills, with statistics and mathematical modeling relegated
to simple approaches or specialists within the field. My own math skills were
what made me stand out as an ecologist and environmental scientist. At the same
time, despite some general platitudes towards conservation issues, most
academic ecologists keep arms-distance away from environmental policy
processes. I raised concerns about the inability of ecologists to provide
effective advice under these circumstances as a graduate student, and in 2003
in a letter published in the journal Frontiers
in Ecology and the Environment and believe my observations and suggestions
are still relevant today.

In contrast, though many academic
economists focus on theoretical work and stay away from policy matters, there
are well-respected academic economists at the very top echelons of
policy-making (e.g., the Federal Reserve Board plus typically at least two Cabinet-level
positions in the White House) and public commentary (e.g., Paul Krugman of the
New York Times). Also, whereas my math skills are well beyond those of most
ecologists, they only barely keep me afloat among my economic colleagues.

No doubt as a result of these two
characteristics, economic policy debates generally do a better job of addressing
fundamental trade-offs and acknowledging uncertainty than environmental debates.
The public is often only vaguely aware of the details. Take the Taylor Rule as an example.

it
– πt – r*t = aπ(πt – π*t)
+ ay(yt – y*t)

This rule calculates an interest
rate goal (nominal interest, it, minus inflation, πt, and
an assumed/targeted real interest rate, r*t) for the
Federal Reserve based on the degree to which inflation (πt) and
economic growth (yt) are matching targets (π*t
and y*t, respectively). The adjustment-rate parameters, aπ
and ay, establish the responsiveness of the policy to divergences of
inflation and economic growth rates from goals.

Don’t worry if the equation looks
Greek. The concept is this: interest rates are adjusted down if inflation is low,
economic growth is weak, or some combination of the two; and up if the opposite
conditions hold. This rule was proposed as a way of setting monetary policy
objectively and dispassionately, and has benefits both in terms of stabilizing
policy choices and making them more predictable for people and industries
affected by these choices. Interestingly, the equation specifies a general
framework rather than a specific policy. In particular, policymakers must
choose target levels for inflation and growth, and adjustment rates for how to
respond to being off-target. Sound like rocket
science as applied to fisheries? It should. The principles are identical.
Monetary policy was not an area I studied in depth, but I was always curious
whether analysts had explored the implications of different policy choices
within a Taylor Rule. From a cursory scan of the literature, it seems that most
work has focused on whether interest rates should respond more to inflation or
growth deviations, rather than a comprehensive analysis of the costs and
benefits of more or less responsive policies in general.

Regardless, the existence of this
rule and its widespread use and sometimes direct application when the Fed
considers its monetary policy choices serve as evidence that economists really
do a better job of informing public policy debates than ecologists and
environmental scientists.

To improve the situation for the
environment, the necessary changes are pretty obvious and yet far from easy to
enact. We need whole groups of trained environmental scientists in
decision-making positions. We also need an environmental science field that
elevates its quantitative skills so that more ecologists are proficient with
highly technical statistical and mathematical models. These changes will not be
easy to enact because, unlike the field of economics where academics are
recognized and rewarded for their efforts to understand and address the nuances
of real-world policies, ecologists still mostly work in ivory towers. Until
the profession changes to better-reward ecologists for working on and
publishing results from detailed policy analyses, there they will stay.